This FTSE 100 firm isn’t the only dividend stock I’d buy today and hold forever

Roland Head flags up a potential Warren Buffett buy in the FTSE 100 (INDEXFTSE:UKX).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Warren Buffett famously said that “if you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”.

Mr Buffett’s commitment to long-term investing in quality businesses has seen him become a billionaire. But finding stocks suitable for this long-term strategy isn’t always easy.

Today I’m looking at two companies I believe are potential Buffett-style investments.

Another strong year

Shares of meat-packer Hilton Food Group (LSE: HFG) rose this morning after the company said sales rose by 5.7% to £1,359.5m last year, excluding currency gains. Adjusted pre-tax profit rose by 7.9% to £37.4m, while adjusted earnings were 5.9% higher at 37.4p per share.

Hilton — which was founded with a single Cambridgeshire plant in 1994 — now operates factories in six European countries, plus Australia and New Zealand. The group is also involved in several joint ventures overseas.

Last year saw the company expand into the seafood market through the acquisition of Seachill UK. It also began to produce fresh food such as pizza, sandwiches and soups.

This business should keep growing

Hilton’s earnings have grown by an average of 6.5% per year since 2011. As you’d expect for a supermarket supplier, profit margins are slim. But the business benefits from strong cash generation and high returns on the capital it invests.

I believe this is one of the main reasons for the group’s success. Although sales have risen by 32% since 2012, net debt levels have actually fallen over the same period. The company ended last year with net cash of £25.4m

Shares in this Huntingdon-based firm have risen by 130% over the last five years. They now trade on a forecast P/E of 19 with a prospective yield of 2.6%. Although this isn’t cheap, I believe the quality of this business means that further gains are still possible.

A family-owned business

Businesses with family ownership are often run with a long-term view that leads to sustainable growth, rather than boom-and-bust scenarios.

A good example of this is FTSE 100 firm Associated British Foods (LSE: ABF). This diverse group owns budget fashion retailer Primark, grocery businesses such as Kingsmill and Silver Spoon, plus specialist agricultural and ingredients operations.

The company is run by chief executive George Weston, who is a member of the founding Weston family.

Profits have doubled since 2012 and adjusted earnings rose by 20% to 127.1p per share last year.

However, the firm warned that profit margins in the sugar business and at Primark would remain under pressure in 2018. This prompted a sharp drop in the group’s share price, which has fallen by 25% since October.

This could be a buying opportunity

ABF’s latest trading statement confirmed that adjusted profits are expected to rise this year. Analysts’ forecasts suggest this could translate into earnings per share growth of 6%, plus dividend growth of 9%.

The forward dividend yield here is only 1.9%, but this low yield reflects expected dividend cover of three times earnings. That’s the kind of long-term thinking and conservative management which makes it possible to increase the dividend during lean years.

In my view, ABF’s falling share price has created a buying opportunity. Trading on 18 times forecast earnings, I rate this as a long-term buy that could deliver healthy gains over the next decade.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »